Sounds like the heat control is working fine. You get no ground/valve open on max heat, and then it starts cycling on and off at lower temp settings.

This means the problem is somewhere else. Remember that two things have to happen to get heat - hot water needs to flow through the heater radiator and the flaps have to be set to "heat" to allow air to blow past the heater radiator. These flaps are controlled by vacuum and respond to signals from the push-button unit. When you go to max heat, you can feel the detent click. This "hard wires" the flaps to "heat." When you are at mid-position on the temp wheel, the control unit decides how to set the flaps and it sounds like it's not doing this correctly. This could happen because it's getting a bad reading from sensor, or because it's gone TU.

If you're still up to troubleshooting this, look at this post where a couple of us were trying to troubleshoot heating problems.

http://www.peachparts.com/shopforum/showthread.php?t=203194

__________________
Chuck Taylor
Falls Church VA
'66 200, '66 230SL, '96 SL500. Sold: '81 380SL, '86 300E, '72 250C, '95 C220, 3 '84 280SL's '90 420SEL, '72 280SE, '73 280C, '78 280SE, '70 280SL, '77 450SL, '85 380SL, '87 560SL, '85 380SL, '72 350SL, '96 S500 Coupe